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Below the Perspective on US CPI: Soft print, but Fed to remain on the sidelines by Ms. Madhavi Arora, Chief Economist, Emkay Global Financial Services 

 May'25 US CPI was softer-than-expected, with any tariff impact not bring felt for now due to the flood of front-run imported goods. The Fed is likely to remain cautious in such a scenario, with virtually no chance of a rate cut next week as it waits for tariff noise to settle

 Headline CPI was softer than expected at 0.1% m/m (0.2% est), and was up 2.4% y/y (2.4% est). Core CPI was also soft, at 0.1% m/m (0.3% exp). The YoY rate came in at 2.8% (vs 2.9% est)

* Core goods inflation dipped to 0.0% m/m from 0.1% m/m prev. While the likes of apparel (-0.4%), new vehicles (-0.3%) and used vehicles (-0.5%) saw sharp declines, HH furnishings (0.3%) and recreational commodities (0.4%) rose meaningfully

 Core services also dipped, to 0.2% m/m (vs 0.3% prior). The pace of shelter costs was moderate (0.3% m/m)

 Core services excluding shelter (‘supercore’) fell to 0.1% m/m vs 0.2% prior (2.9% y/y). Some of the usual repeat offenders – vehicle insurance (0.6% m/m) and car & truck rentals (2.7% m/m) saw high momentum again, while airfares saw another steep drop (-2.7% m/m)

 The soft print has led to a sharp market reaction: S&P futures are up 0.4%, while UST2Y/10Y are down 8bps/4bps resp, and DXY is down 0.4%

 The mkt continues to price in two Fed cuts in 2025, with this print barely moving the needle on rate cut pricing. The probability of a cut next week is literally zero, with the next cut expected in October.

 While this print is somewhat reassuring, there remains very little signal in the data, with firms continuing to manage tariffs for now – tariffs will likely only show up in the data (either through higher inflation or lower profit margins) a few months down the line. In such a scenario, the Fed will remain on wait-and-watch mode

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